Thursday, July 8, 2010

What Are Pre-Foreclosures in the Real Estate Market and How Can They Benefit Me As an Investor?

A foreclosure is a formal legal process. Lenders begin the process when home owners fail to live up to their mortgage obligations. As a result, the lenders want the property back and, depending on the state, file a law suit or a notice of default.

A pre-foreclosure sale is one that takes place between the date when the lender files suit and when the property is scheduled to be sold at a public foreclosure action or a trustee’s sale. A pre-foreclosure is not a formal legal process; it’s an opportunity for you to help beleaguered home owners out.

Before I discuss the benefits of pre-foreclosures for you as an investor, let’s step back a moment and look at the reasons for foreclosures.

Beyond the recent “mortgage meltdown” due to the recession, there are many reasons that foreclosures occur. Often, people tend to think that foreclosures occur because of poor financial management by home owners and others.

While this certainly can be true, there are really many different reasons why foreclosures take place – personal problems (divorce, illness, etc.), the tendency of first-time buyers to overextend themselves, etc. Also, before the recession, foreclosures were caused by predatory lenders, lenient terms by all lenders, and low interest rates.

Now, let’s look at the benefits of making a living as an investor in the pre-foreclosure market.

What Are the Pros of Working in the Pre-Foreclosure Market?

If you’re a careful investor, the pre-foreclosure offers you many benefits:

- The ability to buy properties at a deep discount

- The ability to craft deals that cost you very little money.

- No complicated paperwork

- The ability to inspect properties (to avoid “money pits)

- The ability to structure sales agreements with favorable terms.

- The opportunity for personal and financial freedom (you can set your own hours, rules, etc. as an independent investor)

Now, as you know, every field has its disadvantages as well as advantages. So, let’s look at the cons next.

What Are the Cons of Working in the Pre-Foreclosure Market?

Perhaps the number one disadvantage is dealing with the owners of the properties. They’re not in a good situation, and, most of the time, they’re not happy about it.

That means you need to deal with their anger and frustration in a diplomatic manner and have a thick skin at the same time. The best way to do this is to approach the situation as a problem-solver; that is, you’re there to help them make the best of a bad situation and to help them avoid the embarrassment of foreclosure.

A second disadvantage is that there’s a lot of courthouse work to do to ensure any pre-foreclosure deal is profitable; for example, making sure there aren’t liens or other legal entanglements. You’ll definitely need to pay attention to all the details in these records.

The final disadvantage is that you’ll face some stiff competition in this market. So, you’ll have to stay on top of it at all times!And if you have any questions or topics you'd like to discuss, contact me at (615) 822-2003 x186 or email me at bernie@berniegallerani.com.